Advance Capital Partners, LLC and Liza Price v. Bela Rossmann

November 9, 2011

ADVANCE CAPITAL PARTNERS, LLC AND LIZA PRICEv.BELA ROSSMANN

The opinion of the court was delivered by: Thomas J. Rueter United States Magistrate Judge

MEMORANDUM OF DECISION

Before the court for decision after a bench trial is an action filed by plaintiffs, Advance Capital Partners, LLC and Liza Price, against defendant, Bela Rossmann, asserting claims of breach of contract, breach of implied covenant of good faith and fair dealing, fraudulent inducement, fraudulent concealment, breach of fiduciary duty, and negligent misrepresentation. See Complaint (Doc. No. 1). The parties consented to trial before the undersigned and the Honorable J. Curtis Joyner referred the trial to this court by order dated June 30, 2010 (Doc. No. 16). Trial commenced on December 13, 2010 and testimony was heard through December 14, 2010. Closing arguments were presented on February 23, 2011, and each party submitted proposed findings of fact and conclusions of law (Doc. Nos. 22, 24). In accordance with Fed. R. Civ. P. 52(a), the court makes the following Findings of Fact and Conclusions of Law:

I. FINDINGS OF FACT

A. The Parties and the Property

Plaintiff Advance Capital Partners, LLC ("ACP") is a limited liability company organized and existing under the laws of the State of New Jersey, with its principal place of business in New Jersey. Peter Cocoziello, at all times relevant hereto, was the Chief Executive Officer of ACP. (N.T., 12/13/10, at 7-8.) Mr. Cocoziello has been involved in the acquisition and development of real estate for commercial, residential and mixed use purposes for more than thirty years. Id. at 9-10. Plaintiff Liza Price ("Ms. Price" and with ACP, "plaintiffs") is an individual residing in New Jersey. Defendant Bela Rossmann ("defendant") is an individual residing in Bucks County, Pennsylvania. (Complaint ¶¶ 1-3; Answer ¶¶ 1-3.) At issue in this action is a fifty-eight acre parcel of real property located on Buckmanville Road, in Upper Makefield Township, Bucks County, Pennsylvania (the "Property"). Mingdesty, Inc. ("Mingdesty") is an entity formed by defendant to hold title to the Property. Until November 25, 2008, defendant was the sole shareholder of Mingdesty. (Complaint ¶ 3; Answer ¶ 3.)

B. The Purchase of the Property

On or about October 8, 2004, defendant and two partners (the two partners will be referred to herein as the "Former Partners") executed an agreement of sale to purchase the Property from Benita J. Ryan with settlement to take place on or before October 1, 2006. (Ex. P-5.) By letter dated September 7, 2006, defendant was notified of the approval of the final subdivision plan for the Property. (Ex. P-6.) Shortly thereafter, the Former Partners notified defendant that they would not go forward with the purchase of the Property and assigned their interests in the agreement of sale to defendant and Mingdesty in an Assignment Agreement dated September 27, 2006. (Ex. P-4; N.T., 12/14/10, at 157-58.) Ms. Ryan agreed to extend the closing date to November 1, 2006. (Ex. P-5.)

National Penn Bank ("National Penn") was defendant's lender for the purchase of the Property. National Penn lent defendant $3,100,000 (the "National Penn Loan"). (Ex. P-8.)

Defendant required one or more partners willing to make a loan of $1.1 million in order to meet the lending requirements of National Penn to close on the purchase of the Property.*fn1 Defendant called Ms. Price seeking names of potential investors. Defendant was introduced to Ms. Price in 2000 by persons performing work on her farm. (N.T., 12/13/10, at 164.) Ms. Price met Mr. Cocoziello in 2001 through an organization called the Young President's Organization. Id. at 11, 176. Ms. Price introduced Mr. Cocoziello to defendant to discuss the Property. Id. at 169-70. On October 23, 2006, Ms. Price and Mr. Cocoziello met with defendant at Mr. Cocoziello's office for approximately thirty minutes. Id. at 171. At this meeting, defendant provided plaintiffs with a copy of the Buckmanville Road Project brochure. (Ex. P-9; N.T., 12/13/10, at 171; N.T., 12/14/10, at 156.)

On October 29, 2006, Ms. Price, Mr. Cocoziello, his wife Sharon, and Tim Dillon*fn2 toured the Property with defendant for approximately forty-five minutes. During the tour, defendant explained that the Property was to be divided into two lots, a fourteen acre lot and a forty-four acre lot. (Complaint ¶ 10; Answer ¶ 10.) Defendant stated that he had interested buyers for the fourteen acre lot. Defendant wanted to close quickly on the purchase of the Property so that he could make the sale of the smaller lot. (N.T., 12/13/10, at 92.) Plaintiffs knew defendant did not have an agreement of sale for either lot. Id. at 72-73, 179.

While at the Property, defendant stated that he had completed the work necessary for the subdivision approvals, but that he needed to close on the sale to finish the subdivision requirements. Id. at 179, 202-03. "Site plan maps" of an engineering nature and "rough plans," were made available during the tour. Id. at 20, 49, 88. See also N.T., 12/14/10, at 160. During the tour, defendant showed plaintiffs the location of the retention basins on both lots. Id. At the time the individuals toured the Property, other than a "crude road," no visible improvements were made to the Property. (N.T., 12/13/10, at 90, 141-42.) No work had been done to construct storm water run-off and/or retention basins, or other improvements to the Property.

After touring the Property, the individuals went to lunch and discussed the purchase of the Property by Mingdesty. Mingdesty would purchase the Property financed by personal loans from both plaintiffs secured by a pledge of Mingdesty stock and the National Penn Loan secured by a mortgage on the Property. The lunch lasted between thirty and ninety minutes. (N.T., 12/13/10, at 23-24.) Plaintiffs considered extending the loans and Mr. Cocoziello asked defendant to forward documents to Mr. Dillon for review. Mr. Cocoziello relied upon Mr. Dillon to perform the due diligence in connection with the transaction. Id. at 48-49, 58-59, 68, 193.

Ms. Price did not request documents regarding the purchase of the Property and relied upon ACP's decision. Id. at 210. ACP also relied upon National Penn to have completed due diligence regarding the transaction. Id. at 67-68, 145. Prior to the closing, Mr. Dillon reviewed National Penn's mortgage commitment letter. Id. at 144-45. The National Penn mortgage commitment letter addressed the assignment agreement pursuant to which Mingdesty, the borrower, was obligated to pay the Former Partners the sum of $140,000. (Ex. P-41 ¶ 30.)

Plaintiffs' loans were to be gap financing. These loans would allow defendant to close on the Property and quickly complete the sale of the fourteen acre lot. While the parties intended or hoped that plaintiffs would be repaid quickly from the sale of the smaller lot, plaintiffs knew defendant did not have an agreement of sale for either lot. (N.T., 12/13/10, at 72-73, 137-38.) Mr. Cocoziello testified that he thought the loan could be outstanding for "a year, two years." Id. at 26.

A representative from National Penn attended the closing on November 1, 2006 (the "Closing"). Plaintiffs did not attend the Closing. Mingdesty's purchase of the Property was funded by the following sources: (1) the National Penn Loan in the amount of $3.1 million secured by a mortgage on the Property; (2) a loan from Ms. Price in the amount of $400,000 (the "Price Loan") secured by a pledge of Mingdesty stock; and (3) a loan from ACP in the amount of $700,000 (the "ACP Loan" and, with the Price Loan, the "Plaintiffs' Loans") secured by a pledge of Mingdesty stock. Mr. Dillon hired an attorney to prepare the documents ACP and Price required for the transaction. (N.T., 12/13/10, at 189.)

On November 1, 2006, defendant and Mingdesty executed and delivered to plaintiffs promissory notes (the "Plaintiffs' Notes") and Stock Pledge and Security Agreements (the "Stock Pledge Agreements"). See Exs. P-10, P-11, P-12 and P-14. Defendant also delivered unendorsed share certificates for the stock in Mingdesty pledged as security for the Plaintiffs' Loans. See Exs. P-13 and P-15.

C. Defaults and Foreclosure

In the fall of 2008, defendant ceased paying interest on the National Penn Loan. In October 2008, defendant asked Ms. Price for an additional loan of monies in order to pay an interest payment on the National Penn Loan. Defendant executed a promissory note payable to Ms. Price in the amount of $10,300 to be paid back by December 15, 2008 from a commission defendant was expecting from the sale of another property (the "Second Price Loan"). (Ex. P-28.) Defendant never repaid any portion of the Second Price Loan. (N.T., 12/13/10, at 199-200.) By letter dated December 10, 2008, National Penn notified plaintiffs that Mingdesty was in default of the National Penn Loan. (Ex. P-30.)

Mingdesty's default under the mortgage constituted a default under the terms of the Plaintiffs' Loans. Plaintiffs exercised their rights under the Stock Pledge Agreements and took control of Mingdesty. (Exs. P-25 to P-27.) Mingdesty, under control of plaintiffs, did not cure the National Penn Loan default. National Penn foreclosed on the Property. ACP entered into an Assignment of Sheriff's Bid with National Penn, and ACP purchased the Property for $2.0 million. (Ex. P-35.)

D. Nondisclosures/ Misrepresentations

Plaintiffs identify three categories of nondisclosures or misrepresentations in this case.*fn3 (Pls.' Prop. Findings of Fact at 23-24.) The first category concerned the status of the subdivision process. The second were misrepresentations regarding amounts defendant agreed to pay the Former Partners. The third category involved amounts defendant owed to Ms. Ryan. Id. During his closing argument, plaintiffs' counsel identified a fourth category of ...

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